Cerence Inc
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
CRNC$8.15+1.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-10.
0000950170-24-057667
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000950170-24-094836
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 166 previous paragraphs and 164 current paragraphs.
74 unchanged; 69 reworded; 20 added; 20 removed; 3 previous and 1 current paragraphs rearranged.
Tables are not compared: 24 previous and 24 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (20)
Current report
Total revenue increased by $8.8 million, or 14.4%, to $70.5 million from $61.7 million.
Current report
Cash provided by operating activities was $12.9 million, a net change of $21.0 million from cash used in operating activities of $8.2 million.
Current report
For the nine months ended June 30, 2024 as compared to the nine months ended June 30, 2023:
Current report
Total revenue increased by $63.0 million, or 29.5%, to $276.7 million from $213.7 million.
Current report
Cash provided by operating activities was $11.1 million, a net change of $14.9 million from cash used in operating activities of $3.8 million.
Current report
Total revenues for the three months ended June 30, 2024 were $70.5 million, an increase of $8.8 million, or 14.4%, from $61.7 million for the three months ended June 30, 2023. The increase in revenues was driven by license revenue. The increase was partly offset by decreases in connected service and professional service revenues.
Current report
Total cost of revenues for the three months ended June 30, 2024 were $20.1 million, a decrease of $0.8 million, or 4.0%, from $20.9 million for the three months ended June 30, 2023.
Current report
Cost of connected services revenue for the three months ended June 30, 2024 was $5.7 million, an increase of $0.1 million, or 2.8%, from $5.6 million for the three months ended June 30, 2023. Cost of connected services revenue increased primarily due to a $0.3 million increase in our cloud infrastructure costs and $0.1 million increase in stock-based compensation costs. The increase was partially offset by a $0.4 million decrease in amortization of costs previously deferred. As a percentage of total cost of revenues, cost of connected services revenue increased by 1.8 percentage points from 26.6% for the three months ended June 30, 2023 to 28.4% for the three months ended June 30, 2024.
Current report
Total cost of revenues for the nine months ended June 30, 2024 were $67.3 million, a decrease of $4.8 million, or 6.7%, from $72.1 million for the nine months ended June 30, 2023.
Current report
Cost of connected services revenue for the nine months ended June 30, 2024 was $18.4 million, an increase of $0.2 million, or 0.9%, from $18.2 million for the nine months ended June 30, 2023. Cost of connected services revenue increased primarily due to a $0.7 million increase in our cloud infrastructure costs and a $0.5 million increase in internally allocated labor costs. The increase was partially offset by a $0.6 million decrease in salary-related expenditures. As a percentage of total cost of revenues, cost of connected service revenue increased by 2.0 percentage points from 25.3% for the nine months ended June 30, 2023 to 27.3% for the nine months ended June 30, 2024.
Current report
Cost of professional services revenue for the nine months ended June 30, 2024 was $44.0 million, a decrease of $3.4 million, or 7.2%, from $47.4 million for the nine months ended June 30, 2023. Cost of professional services revenue decreased primarily due to a $3.1 million decrease in salary-related expenditures, a $0.8 million decrease in amortization of costs previously deferred, a $0.6 million decrease in stock-based compensation costs, and a $0.2 million decrease in hardware costs. The decrease was partially offset by a $1.6 million increase in third-party contractor costs. As a percentage of total cost of revenues, cost of professional services revenue decreased by 0.4 percentage points from 65.8% for the nine months ended June 30, 2023 to 65.4% for the nine months ended June 30, 2024.
Current report
General and administrative expenses for the nine months ended June 30, 2024 were $39.3 million, a decrease of $7.2 million, or 15.4%, from $46.5 million for the nine months ended June 30, 2023. The decrease in general and administrative expenses was primarily attributable to a $8.3 million decrease in stock-based compensation costs. The decrease was partially offset by a $0.5 million increase in professional fees, a $0.4 million increase in cloud infrastructure costs, a $0.4 million increase in hardware and software expenditures, and a $0.3 million increase in salary-related expenditures. As a percentage of total operating expenses, general and administrative expenses decreased by 21.8 percentage points from 26.9% for the nine months ended June 30, 2023 to 5.1% for the nine months ended June 30, 2024.
Current report
For the three months ended June 30, 2023, we recorded restructuring and other costs, net of $1.2 million, which included a $1.0 million severance charge related to the elimination of personnel, and $3.5 million of third-party fees relating to the modification of the 2025 Notes, offset by a $3.3 million other one-time gain.
Current report
For the nine months ended June 30, 2023, we recorded restructuring and other costs, net of $11.1 million, which included a $7.4 million severance charge related to the elimination of personnel, $3.5 million of third-party fees relating to the modification of the 2025 Notes, a $0.3 million charge resulting from the closure of facilities that will no longer be utilized, offset by a $3.3 million other one-time gain.
Current report
(Benefit From) Provision For Income Taxes
Current report
Our effective income tax rate for the three months ended June 30, 2024 was 11.9%, compared to negative 22.4% for the three months ended June 30, 2023. Our benefit from income taxes for the three months ended June 30, 2024 was $42.6 million, a net change of $45.6 million from a provision for income taxes of $3.0 million for the three months ended June 30, 2023. This difference was attributable to the impairment of book goodwill and a change from estimating interim period taxes on the annual method to the year-to-date method. Our provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full year to ordinary pre-tax income (loss), excluding unusual or infrequently occurring discrete items, for the reporting period. As small changes in the estimated ordinary income (loss) may result in a significant change in the estimated annual effective tax rate, we computed our provision based on the actual effective tax rate for the three and nine months ended June 30, 2024.
Current report
Net Cash Provided by (Used in) Investing Activities
Current report
A decrease of $190.0 million in proceeds from long-term debt;
Current report
A decrease of $24.7 million in proceeds from revolving credit facilities;
Current report
An increase of $6.0 million in proceeds from the issuance of our common stock; and
Removed paragraphs (20)
Previous report
Total revenue decreased by $0.6 million, or 0.8%, to $67.8 million from $68.4 million.
Previous report
Cash provided by operating activities was $1.0 million, a net change of $5.6 million from cash provided by operating activities of $6.6 million.
Previous report
For the six months ended March 31, 2024 as compared to the six months ended March 31, 2023:
Previous report
Total revenue increased by $54.1 million, or 35.6%, to $206.2 million from $152.1 million.
Previous report
Cash used in operating activities was $1.8 million, a net change of $6.2 million from cash provided by operating activities of $4.4 million.
Previous report
Total revenues for the three months ended March 31, 2024 were $67.8 million, a decrease of $0.6 million, or 0.8%, from $68.4 million for the three months ended March 31, 2023. The decrease in revenues was driven by a decrease in connected services revenue. The decrease was partly offset by increases in license revenue, which includes a one-time $5.0 million deal as full resolution of the one-time adjustment related to a change in a customer's historically reported royalties made in the first quarter of fiscal 2024.
Previous report
Total cost of revenues for the three months ended March 31, 2024 were $20.9 million, a decrease of $4.1 million, or 16.5%, from $25.0 million for the three months ended March 31, 2023.
Previous report
Cost of connected services revenue for the three months ended March 31, 2024 was $5.4 million, a decrease of $0.7 million, or 12.3%, from $6.1 million for the three months ended March 31, 2023. Cost of connected services revenue decreased primarily due to a $0.4 million decrease in salary-related expenditures and a $0.4 million decrease in amortization of costs previously deferred. As a percentage of total cost of revenues, cost of connected services revenue increased by 1.3 percentage points from 24.4% for the three months ended March 31, 2023 to 25.7% for the three months ended March 31, 2024.
Previous report
Cost of professional services revenue for the three months ended March 31, 2024 was $14.1 million, a decrease of $2.5 million, or 14.9%, from $16.6 million for the three months ended March 31, 2023. Cost of professional services revenue decreased primarily due a $1.8 million decrease in salary-related expenditures, a $0.6 million decrease in amortization of costs previously deferred, and a $0.4 million decrease in stock-based compensation. The decrease was partially offset by a $0.5 million increase in internal allocated labor. As a percentage of total cost of revenues, cost of professional services revenue increased by 1.3 percentage points from 66.3% for the three months ended March 31, 2023 to 67.6% for the three months ended March 31, 2024.
Previous report
Total cost of revenues for the six months ended March 31, 2024 were $47.2 million, a decrease of $4.0 million, or 7.8%, from $51.2 million for the six months ended March 31, 2023.
Previous report
Cost of connected services revenue for the six months ended March 31, 2024 and 2023 remained flat at $12.7 million. As a percentage of total cost of revenues, cost of connected service revenue increased by 2.1 percentage points from 24.7% for the six months ended March 31, 2023 to 26.8% for the six months ended March 31, 2024.
Previous report
General and administrative expenses for the six months ended March 31, 2024 were $29.5 million, a decrease of $3.9 million, or 11.9%, from $33.4 million for the six months ended March 31, 2023. The decrease in general and administrative expenses was primarily attributable to a $6.2 million decrease in stock-based compensation costs. The decrease was partially offset by a $2.4 million increase in credit loss provision, including a $6.1 million provision relating to the bankruptcy of one fitness equipment manufacturer. During the three months ended March 31, 2023, we recorded a $3.8 million provision relating to one international electric vehicle maker. As a percentage of total operating expenses, general and administrative expenses decreased by 19.0 percentage points from 27.1% for the six months ended March 31, 2023 to 8.1% for the six months ended March 31, 2024.
Previous report
For the three months ended March 31, 2023, we recorded restructuring and other charges, net of $5.7 million, which included a $3.4 million severance charge related to the elimination of personnel, a $0.2 million charge resulting from the closure of facilities that will no longer be utilized, and $2.2 million related to other one-time charges.
Previous report
For the six months ended March 31, 2023, we recorded restructuring and other charges, net of $9.9 million, which included a $6.4 million severance charge related to the elimination of personnel, a $0.3 million charge resulting from the closure of facilities that will no longer be utilized, and $3.1 million related to other one-time charges.
Previous report
Provision For Income Taxes
Previous report
(b)
Previous report
Contractual lease commitments are shown net of sublease income related to certain facilities. As of March 31, 2024, we anticipate sublease income of $0.2 million through fiscal year 2024.
Previous report
Net Cash (Used in) Provided by Operating Activities
Previous report
An increase of $0.7 million in capital expenditures.
Previous report
An increase of $6.1 million in proceeds from the issuance of our common stock;
Reworded paragraphs (69)
Previous wording
You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, filed with the Securities and Exchange Commission (“SEC”) on November 29, 2023. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, results of operations and financial condition, macroeconomic conditions, the semiconductor shortage, trends in the global auto industry and adjacent markets, including shipping and production issues, new products, cost management, and tax estimates and other tax matters, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note that the results of operations for the three and six months ended March 31, 2024 are not necessarily indicative of what our operating results for the full fiscal year will be. In this Item, “we,” “us,” “our,” “Cerence” and the “Company” refer to Cerence Inc. and its consolidated subsidiaries, collectively.
Current wording
You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”), and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, filed with the Securities and Exchange Commission (“SEC”) on November 29, 2023. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, our performance and future success, our liquidity and capital resources, results of operations and financial condition, macroeconomic conditions, the semiconductor shortage, trends in the global auto industry and adjacent markets, including shipping and production issues, new products, process optimization efforts and cost management, and tax estimates and other tax matters, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.” You should review the “Risk Factors” sections in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note that the results of operations for the three and nine months ended June 30, 2024 are not necessarily indicative of what our operating results for the full fiscal year will be. In this Item, “we,” “us,” “our,” “Cerence” and the “Company” refer to Cerence Inc. and its consolidated subsidiaries, collectively.
Previous wording
Our principal offering is our software platform, which our customers use to build virtual assistants that can communicate, find information, and take action across an expanding variety of categories. Our software platform has a hybrid architecture combining edge software components with cloud-connected components. Edge software components are installed on a vehicle’s head unit and can operate without access to external networks and information. Cloud-connected components are comprised of certain speech and natural language understanding related technologies, AI-enabled personalization and context-based response frameworks, and content integration platform.
Current wording
Our principal offering is our software platform, which our customers use to build virtual assistants that can communicate, find information, and take action across an expanding variety of categories. Our software platform has a hybrid architecture combining edge software components with cloud-connected components. Edge software components are installed on a vehicle’s head unit and can operate without access to external networks and information. Cloud-connected components are comprised of certain speech and natural language understanding related technologies, AI-enabled personalization and context-based response frameworks, and a content integration platform.
Previous wording
The condensed consolidated balance sheet data as of September 30, 2023 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and six months ended March 31, 2024 are not necessarily indicative of the results expected for the full fiscal year ending September 30, 2024.
Current wording
The condensed consolidated balance sheet data as of September 30, 2023 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and nine months ended June 30, 2024 are not necessarily indicative of the results expected for the full fiscal year ending September 30, 2024.
Previous wording
Operating margin decreased 359.7 percentage points to negative 389.8% from negative 30.1%.
Current wording
Operating margin decreased 489.3 percentage points to negative 503.1% from negative 13.8%.
Previous wording
Operating margin decreased 84.9 percentage points to negative 99.8% from negative 14.9%.
Current wording
Operating margin decreased 188.0 percentage points to negative 202.6% from negative 14.6%.
Previous wording
The following table shows the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2024 and 2023 (dollars in thousands):
Current wording
The following table shows the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2024 and 2023 (dollars in thousands):
Previous wording
We expect our revenue to continue to be impacted by the changing dynamics in the global automotive industry which have resulted in production delays and slowdowns. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to focus on our cost structure and expect to take future cost reduction actions, which may result in additional restructuring costs and impairment charges.
Current wording
We expect our revenue to continue to be impacted by the changing dynamics in the global automotive industry which have resulted in production delays and slowdowns. Macroeconomic conditions such as high interest rates and lack of credit availability have contributed to these production delays and slowdowns. In addition, the software and technology systems in automobiles have become increasingly complex, leading to substantial challenges and delays in production for some of our customers. Our business in adjacent markets, such as two-wheeled vehicles, trucks and AIoT, is also developing slower than anticipated due to the challenges of introducing different technology into a new market. In light of these challenges, we intend to focus on our cost structure and expect to take future cost reduction actions, which may result in additional restructuring costs and impairment charges. In particular, in August 2024, we announced a restructuring plan intended to reduce operating expenses and position us for profitable future growth (the “Plan”). We estimate that we will incur cash restructuring charges of approximately $18 to $22 million in connection with the Plan, consisting of severance payments, payments in lieu of notice, employee benefits and related costs. We expect to incur the majority of these expenses in the fourth quarter of fiscal year 2024 and first quarter of fiscal year 2025 and the implementation of the Plan will be substantially complete by the end of the first quarter of fiscal year 2025. Potential position eliminations are subject to legal requirements that vary by jurisdiction, which may extend this process beyond the first quarter of fiscal year 2025 in certain cases. The charges that we expect to incur are subject to a number of assumptions, including legal requirements in various jurisdictions, and actual expenses and charges may differ materially from the estimates disclosed above. For additional details, refer to the section titled “Risk Factors”.
Previous wording
License revenue for the three months ended March 31, 2024 was $35.5 million, an increase of $4.7 million, or 15.3%, from $30.8 million for the three months ended March 31, 2023. The increase in license revenue was driven by a $5.8 million increase in fixed contracts. The increase was partially offset by a $1.1 million decrease in variable license revenue due to lower volume of licensing royalties. Included in fixed contracts for the period was a $5.0 million deal as full resolution of a one-time adjustment related to a change in a customer's historically reported royalties made in the first quarter of fiscal 2024. As a percentage of total revenues, license revenue increased 7.4 percentage points from 45.0% for the three months ended March 31, 2023 to 52.4% for the three months ended March 31, 2024.
Current wording
License revenue for the three months ended June 30, 2024 was $43.1 million, an increase of $17.3 million, or 66.6%, from $25.8 million for the three months ended June 30, 2023. The increase in license revenue was driven by a $20.0 million increase in fixed contracts. The increase was partially offset by a $2.9 million decrease in variable license revenue due to lower volume of licensing royalties. As a percentage of total revenues, license revenue increased 19.1 percentage points from 41.9% for the three months ended June 30, 2023 to 61.0% for the three months ended June 30, 2024.
Previous wording
Connected services revenue for the three months ended March 31, 2024 was $13.6 million, a decrease of $5.3 million, or 28.2%, from $18.9 million for the three months ended March 31, 2023. This decrease was driven by a $8.4 million decrease related to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition. The decrease was partially offset by a $3.0 million increase in demand for our connected services solutions from new connected business. As a percentage of total revenues, connected services revenue decreased by 7.7 percentage points from 27.7% for the three months ended March 31, 2023 to 20.0% for the three months ended March 31, 2024.
Current wording
Connected services revenue for the three months ended June 30, 2024 was $10.9 million, a decrease of $7.7 million, or 41.1%, from $18.6 million for the three months ended June 30, 2023. This decrease was driven by a $8.4 million decrease related to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition. The decrease was partially offset by a $0.7 million increase in demand for our connected services solutions from new connected business. As a percentage of total revenues, connected services revenue decreased by 14.6 percentage points from 30.1% for the three months ended June 30, 2023 to 15.5% for the three months ended June 30, 2024.
Previous wording
Professional service revenue for the three months ended March 31, 2024 and 2023 remained flat at $18.7 million. Professional service revenues are primarily driven by our arrangements and the related timing of fulfilling performance obligations under the contracts. As a percentage of total revenues, professional services revenue increased by 0.3 percentage points from 27.3% for the three months ended March 31, 2023 to 27.6% for the three months ended March 31, 2024.
Current wording
Professional service revenue for the three months ended June 30, 2024 was $16.5 million, a decrease of $0.7 million, or 4.0%, from $17.2 million for the three months ended June 30, 2023. This decrease was driven by the composition of our arrangements and the related timing of fulfilling performance obligations under the contracts. As a percentage of total revenues, professional services revenue decreased by 4.5 percentage points from 28.0% for the three months ended June 30, 2023 to 23.5% for the three months ended June 30, 2024.
Previous wording
The following table shows total revenues by product type, including the corresponding percentage change, for the six months ended March 31, 2024 and 2023 (dollars in thousands):
Current wording
The following table shows total revenues by product type, including the corresponding percentage change, for the nine months ended June 30, 2024 and 2023 (dollars in thousands):
Previous wording
Total revenues for the six months ended March 31, 2024 were $206.2 million, an increase of $54.1 million, or 35.6%, from $152.1 million for the six months ended March 31, 2023. The increase in revenues was driven by connected services revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer. The increase was partially offset by decreases in license revenue primarily related to fixed contracts.
Current wording
Total revenues for the nine months ended June 30, 2024 were $276.7 million, an increase of $63.0 million, or 29.5%, from $213.7 million for the nine months ended June 30, 2023. The increase in revenues was driven by connected services revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer. The increase was partially offset by decreases in license revenue primarily related to fixed contracts.
Previous wording
License revenue for the six months ended March 31, 2024 was $56.4 million, a decrease of $19.8 million, or 26.1%, from $76.2 million for the six months ended March 31, 2023. The decrease in license revenue was driven by a $13.2 million decrease in fixed contracts and $6.6 million decrease in variable license revenue due to lower volume of licensing royalties. Included in fixed contracts for the period was a $5.0 million deal as full resolution of a one-time adjustment related to a change in a customer's historically reported royalties made in the first quarter of fiscal 2024. As a percentage of total revenues, license revenue decreased 22.8 percentage points from 50.1% for the six months ended March 31, 2023 to 27.3% for the six months ended March 31, 2024.
Current wording
License revenue for the nine months ended June 30, 2024 was $99.4 million, a decrease of $2.7 million, or 2.6%, from $102.1 million for the nine months ended June 30, 2023. The decrease in license revenue was driven by a $9.6 million decrease in variable license revenue due to lower volume of licensing royalties. The decrease was partially offset by a $7.8 million increase in fixed contracts. As a percentage of total revenues, license revenue decreased 11.9 percentage points from 47.8% for the nine months ended June 30, 2023 to 35.9% for the nine months ended June 30, 2024.
Previous wording
Connected services revenue for the six months ended March 31, 2024 was $110.4 million, an increase of $73.1 million, or 195.9%, from $37.3 million for the six months ended March 31, 2023. This increase was primarily driven by the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer. The effect of these changes was an acceleration of $67.8 million and $9.9 million of deferred revenue into the first quarter of fiscal year 2024. As a percentage of total revenues, connected services revenue increased by 29.1 percentage points from 24.5% for the six months ended March 31, 2023 to 53.6% for the six months ended March 31, 2024.
Current wording
Connected services revenue for the nine months ended June 30, 2024 was $121.4 million, an increase of $65.5 million, or 117.1%, from $55.9 million for the nine months ended June 30, 2023. This increase was primarily driven by the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer. The effect of these changes was an acceleration of $67.8 million and $9.9 million of deferred revenue, respectively, into the first quarter of fiscal year 2024. As a percentage of total revenues, connected services revenue increased by 17.7 percentage points from 26.2% for the nine months ended June 30, 2023 to 43.9% for the nine months ended June 30, 2024.
Previous wording
Professional service revenue for the six months ended March 31, 2024 was $39.4 million, an increase of $0.9 million, or 2.3%, from $38.5 million for the six months ended March 31, 2023. This increase was primarily driven by our arrangements and the related timing of fulfilling performance obligations under the contracts. As a percentage of total revenues, professional services revenue decreased by 6.3 percentage points from 25.4% for the six months ended March 31, 2023 to 19.1% for the six months ended March 31, 2024.
Current wording
Professional service revenue for the nine months ended June 30, 2024 was $55.9 million, an increase of $0.1 million, or 0.3%, from $55.8 million for the nine months ended June 30, 2023. This increase was primarily driven by the structure of our arrangements and the related timing of fulfilling performance obligations under the contracts. As a percentage of total revenues, professional services revenue decreased by 5.8 percentage points from 26.0% for the nine months ended June 30, 2023 to 20.2% for the nine months ended June 30, 2024.
Previous wording
We experienced an increase in total gross profit of $3.5 million, or 8.2%, from $43.4 million for the three months ended March 31, 2023 to $46.9 million for the three months ended March 31, 2024. The increase was primarily driven by the increase in license revenues due to higher volume of licensing royalties.
Current wording
We experienced an increase in total gross profit of $9.7 million, or 23.8%, from $40.7 million for the three months ended June 30, 2023 to $50.4 million for the three months ended June 30, 2024. The increase was primarily driven by the increase in license revenues due to higher volume of fixed contracts.
Previous wording
Cost of license revenue for the three months ended March 31, 2024 was $1.4 million, a decrease of $0.8 million, or 36.4%, from $2.2 million for the three months ended March 31, 2023. Cost of license revenues decreased primarily due to costs associated with our Cerence Link product. As a percentage of total cost of revenues, cost of license revenue decreased by 2.1 percentage points from 8.8% for the three months ended March 31, 2023 to 6.7% for the three months ended March 31, 2024.
Current wording
Cost of license revenue for the three months ended June 30, 2024 was $1.8 million, a decrease of $0.5 million, or 23.4%, from $2.3 million for the three months ended June 30, 2023. Cost of license revenues decreased primarily due to costs associated with our Cerence Link product. As a percentage of total cost of revenues, cost of license revenue decreased by 2.3 percentage points from 11.2% for the three months ended June 30, 2023 to 8.9% for the three months ended June 30, 2024.
Previous wording
License gross profit increased by $5.5 million, or 19.3%, for the three months ended March 31, 2024 when compared to the three months ended March 31, 2023, primarily due to increases in license revenues.
Current wording
License gross profit increased by $17.8 million, or 75.6%, for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023, primarily due to increases in license revenues.
Previous wording
Connected services gross profit decreased $4.6 million, or 35.7%, from $12.8 million for the three months ended March 31, 2023 to $8.2 million for the three months ended March 31, 2024, primarily due to declines in connected services revenues.
Current wording
Connected services gross profit decreased $7.8 million, or 59.9%, from $13.0 million for the three months ended June 30, 2023 to $5.2 million for the three months ended June 30, 2024, primarily due to declines in connected services revenues.
Previous wording
Cost of professional services revenue for the six months ended March 31, 2024 was $31.4 million, a decrease of $3.1 million, or 8.9%, from $34.5 million for the six months ended March 31, 2023. Cost of professional services revenue decreased primarily due to a $3.4 million decrease in salary-related expenditures, a $1.0 million decrease in stock-based compensation costs, and a $0.9 million decrease in amortization of costs previously deferred. The decrease was partially offset by a $1.9 million increase in internal allocated labor and a $1.2 million increase in third-party contractor costs. As a percentage of total cost of revenues, cost of professional services revenue decreased by 0.8 percentage points from 67.4% for the six months ended March 31, 2023 to 66.6% for the six months ended March 31, 2024.
Current wording
Cost of professional services revenue for the three months ended June 30, 2024 was $12.6 million, a decrease of $0.3 million, or 2.6%, from $12.9 million for the three months ended June 30, 2023. Cost of professional services revenue decreased primarily due to a $1.2 million decrease in internal allocated labor. The decrease was partially offset by a $0.4 million increase in salary-related expenditures and a $0.4 million increase in stock-based compensation costs. As a percentage of total cost of revenues, cost of professional services revenue increased by 0.8 percentage points from 61.8% for the three months ended June 30, 2023 to 62.6% for the three months ended June 30, 2024.
Previous wording
Professional services gross profit increased $2.5 million, or 120.3%, from $2.1 million for the three months ended March 31, 2023 to $4.6 million for the three months ended March 31, 2024, which was primarily due to the composition of our professional service arrangements.
Current wording
Professional services gross profit decreased $0.3 million, or 8.3%, from $4.3 million for the three months ended June 30, 2023 to $4.0 million for the three months ended June 30, 2024, which was primarily due to the composition of our professional service arrangements.
Previous wording
We experienced an increase in total gross profit of $58.0 million, or 57.6%, from $100.9 million for the six months ended March 31, 2023 to $158.9 million for the six months ended March 31, 2024. The increase was primarily driven by the increase in connected service revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.
Current wording
We experienced an increase in total gross profit of $67.8 million, or 47.9%, from $141.6 million for the nine months ended June 30, 2023 to $209.4 million for the nine months ended June 30, 2024. The increase was primarily driven by the increase in connected service revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.
Previous wording
Cost of license revenue for the six months ended March 31, 2024 was $3.0 million, a decrease of $0.8 million, or 21.3%, from $3.8 million for the six months ended March 31, 2023. Cost of license revenues decreased primarily due to costs associated with our Cerence Link product. As a percentage of total cost of revenues, cost of license revenue decreased by 1.1 percentage points from 7.5% for the six months ended March 31, 2023 to 6.4% for the six months ended March 31, 2024.
Current wording
Cost of license revenue for the nine months ended June 30, 2024 was $4.8 million, a decrease of $1.4 million, or 22.1%, from $6.2 million for the nine months ended June 30, 2023. Cost of license revenues decreased primarily due to costs associated with our Cerence Link product. As a percentage of total cost of revenues, cost of license revenue decreased by 1.4 percentage points from 8.5% for the nine months ended June 30, 2023 to 7.1% for the nine months ended June 30, 2024.
Previous wording
License gross profit decreased by $19.1 million, or 26.3%, for the six months ended March 31, 2024 when compared to the six months ended March 31, 2023, primarily due to declines in license revenues.
Current wording
License gross profit decreased by $1.3 million, or 1.3%, for the nine months ended June 30, 2024 when compared to the nine months ended June 30, 2023, primarily due to declines in license revenues.
Previous wording
Connected services gross profit increased $73.1 million, or 296.3%, from $24.7 million for the six months ended March 31, 2023 to $97.8 million for the six months ended March 31, 2024, primarily due to the increase in connected service revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.
Current wording
Connected services gross profit increased $65.3 million, or 173.3%, from $37.7 million for the nine months ended June 30, 2023 to $103.0 million for the nine months ended June 30, 2024, primarily due to the increase in connected service revenue due to the early termination of a legacy contract acquired by Nuance through a 2013 acquisition and the termination of services provided to a separate customer, who in turn provided services to our legacy customer.
Previous wording
Professional services gross profit increased $3.9 million, or 98.6%, from $4.0 million for the six months ended March 31, 2023 to $7.9 million for the six months ended March 31, 2024, which was primarily due to the composition of our professional service arrangements.
Current wording
Professional services gross profit increased $3.6 million, or 43.2%, from $8.3 million for the nine months ended June 30, 2023 to $11.9 million for the nine months ended June 30, 2024, which was primarily due to the composition of our professional service arrangements.
Previous wording
The tables below show each component of operating expense. Total other expense, net and provision for income taxes are non-operating expenses and presented in a similar format (dollars in thousands).
Current wording
The tables below show each component of operating expense. Total other expense, net and (benefit from) provision for income taxes are non-operating expenses and presented in a similar format (dollars in thousands).
Previous wording
Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the six months ended March 31, 2024 were $65.2 million, an increase of $7.2 million, or 12.4%, from $58.0 million for the six months ended March 31, 2023. The increase was primarily attributable to a $6.2 million increase in salary-related expenditures, $4.1 million increase in third-party contractor costs, and a $0.7 million decrease in capitalized costs associated with internally developed software. The increase was partially offset by a $2.5 million decrease in internally allocated labor and $2.2 million decrease in stock-based compensation expense. As a percentage of total operating expenses, R&D expenses decreased by 29.1 percentage points from 47.0% for the six months ended March 31, 2023 to 17.9% for the six months ended March 31, 2024.
Current wording
Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the three months ended June 30, 2024 were $31.2 million, an increase of $1.0 million, or 3.3%, from $30.2 million for the three months ended June 30, 2023. The increase was primarily attributable to a $1.1 million increase in internally allocated labor. As a percentage of total operating expenses, R&D expenses decreased by 53.7 percentage points from 61.4% for the three months ended June 30, 2023 to 7.7% for the three months ended June 30, 2024.
Previous wording
Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the three months ended March 31, 2024 were $31.8 million, an increase of $3.3 million, or 11.8%, from $28.5 million for the three months ended March 31, 2023. The increase was primarily attributable to a $2.5 million increase in third-party contractor costs, a $1.8 million increase in salary-related expenditures, and a $0.6 million decrease in capitalized costs associated with internally developed software. The increase was partially offset by a $1.5 million decrease in stock-based compensation expense and a $0.8 million decrease in internally allocated labor. As a percentage of total operating expenses, R&D expenses decreased by 34.3 percentage points from 44.5% for the three months ended March 31, 2023 to 10.2% for the three months ended March 31, 2024.
Current wording
Historically, R&D expenses are our largest operating expense as we continue to build on our existing software platforms and develop new technologies. R&D expenses for the nine months ended June 30, 2024 were $96.3 million, an increase of $8.1 million, or 9.2%, from $88.2 million for the nine months ended June 30, 2023. The increase was primarily attributable to a $6.0 million increase in salary-related expenditures, a $4.4 million increase in third-party contractor costs, a $1.4 million decrease in internally allocated labor, and a $1.3 million decrease in capitalized costs associated with internally developed software. The increase was partially offset by a $2.3 million decrease in stock-based compensation expense. As a percentage of total operating expenses, R&D expenses decreased by 38.6 percentage points from 51.1% for the nine months ended June 30, 2023 to 12.5% for the nine months ended June 30, 2024.
Previous wording
Sales and marketing expenses for the three months ended March 31, 2024 were $5.6 million, a decrease of $2.6 million, or 31.6%, from $8.2 million for the three months ended March 31, 2023. The decrease in sales and marketing expenses was primarily attributable to a $1.7 million decrease in salary-related expenditures, a $1.2 million decrease in stock-based compensation costs, and a $0.2 million decrease in professional services. The decrease was partially offset by a $0.2 million increase in commissions expenditures. As a percentage of total operating expenses, sales and marketing expenses decreased by 11.0 percentage points from 12.8% for the three months ended March 31, 2023 to 1.8% for the three months ended March 31, 2024.
Current wording
Sales and marketing expenses for the three months ended June 30, 2024 were $5.2 million, an increase of $0.9 million, or 21.8%, from $4.3 million for the three months ended June 30, 2023. The increase in sales and marketing expenses was primarily attributable to a $1.0 million increase in stock-based compensation costs, $0.4 million increase in salary-related expenditures, and a $0.2 million increase in commissions expenditures. The increase was partially offset by a $0.3 million decrease in professional services. As a percentage of total operating expenses, sales and marketing expenses decreased by 7.4 percentage points from 8.7% for the three months ended June 30, 2023 to 1.3% for the three months ended June 30, 2024.
Previous wording
Sales and marketing expenses for the six months ended March 31, 2024 were $11.7 million, a decrease of $5.7 million, or 32.7%, from $17.4 million for the six months ended March 31, 2023. The decrease in sales and marketing expenses was primarily attributable to a $3.1 million decrease in salary-related expenditures, a $2.1 million decrease in stock-based compensation costs, and a $0.5 million decrease in professional services. The decrease was partially offset by a $0.3 million increase in commissions expenditures and a $0.3 million increase in travel-related expenditures. As a percentage of total operating expenses, sales and marketing expenses decreased by 10.9 percentage points from 14.1% for the six months ended March 31, 2023 to 3.2% for the six months ended March 31, 2024.
Current wording
Sales and marketing expenses for the nine months ended June 30, 2024 were $16.9 million, a decrease of $4.8 million, or 22.0%, from $21.7 million for the nine months ended June 30, 2023. The decrease in sales and marketing expenses was primarily attributable to a $2.7 million decrease in salary-related expenditures, a $1.1 million decrease in stock-based compensation costs, and a $0.8 million decrease in professional services. As a percentage of total operating expenses, sales and marketing expenses decreased by 10.3 percentage points from 12.5% for the nine months ended June 30, 2023 to 2.2% for the nine months ended June 30, 2024.
Previous wording
General and administrative expenses for the three months ended March 31, 2024 were $16.7 million, a decrease of $2.5 million, or 13.1%, from $19.2 million for the three months ended March 31, 2023. The decrease in general and administrative expenses was primarily attributable to a $4.4 million decrease in stock-based compensation costs and a $0.7 million decrease in salary-related expenditures. The decrease was partially offset by a $2.4 million increase in credit loss provision, including a $6.1 million provision relating to the bankruptcy of one fitness equipment manufacturer. During the three months ended March 31, 2023, we recorded a $3.8 million provision relating to one international electric vehicle maker. As a percentage of total operating expenses, general and administrative expenses decreased by 24.6 percentage points from 30.0% for the three months ended March 31, 2023 to 5.4% for the three months ended March 31, 2024.
Current wording
General and administrative expenses for the three months ended June 30, 2024 were $9.8 million, a decrease of $3.2 million, or 24.5%, from $13.0 million for the three months ended June 30, 2023. The decrease in general and administrative expenses was primarily attributable to a $2.4 million credit loss recovery relating to one international electric vehicle maker and a $2.1 million decrease in stock-based compensation costs. The decrease was partially offset by a $0.5 million increase in professional fees, a $0.4 million increase in salary-related expenditures, and a $0.4 million increase in hardware and software expenditures. As a percentage of total operating expenses, general and administrative expenses decreased by 24.0 percentage points from 26.4% for the three months ended June 30, 2023 to 2.4% for the three months ended June 30, 2024.
Previous wording
Intangible asset amortization for the three months ended March 31, 2024 was $0.6 million, a decrease of $1.9 million, or 77.8%, from $2.5 million for the three months ended March 31, 2023. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal year 2024 and 2023. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations.
Current wording
Intangible asset amortization for the three months ended June 30, 2024 was $0.6 million, a decrease of $0.1 million, or 16.2%, from $0.7 million for the three months ended June 30, 2023. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal year 2024 and 2023. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations.
Previous wording
As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.4 percentage points from 0.4% for the three months ended March 31, 2023 to 0.0% for the three months ended March 31, 2024. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 3.5 percentage points from 3.7% for the three months ended March 31, 2023 as compared to 0.2% for the three months ended March 31, 2024.
Current wording
As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.5 percentage points from 0.5% for the three months ended June 30, 2023 to 0.0% for the three months ended June 30, 2024. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 1.0 percentage point from 1.1% for the nine months ended June 30, 2023 as compared to 0.1% for the nine months ended June 30, 2024.
Previous wording
Intangible asset amortization for the six months ended March 31, 2024 was $1.2 million, a decrease of $3.8 million, or 75.7%, from $5.0 million for the six months ended March 31, 2023. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal year 2024 and 2023. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations.
Current wording
Intangible asset amortization for the nine months ended June 30, 2024 was $1.8 million, a decrease of $3.8 million, or 68.7%, from $5.6 million for the nine months ended June 30, 2023. The decrease in amortization relates to certain intangible assets having been fully amortized during fiscal year 2024 and 2023. Amortization expense for acquired technology and patents is included in the cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Amortization expense for customer relationships is included in operating expenses in the accompanying Condensed Consolidated Statements of Operations.
Previous wording
As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.2 percentage points from 0.4% for the six months ended March 31, 2023 to 0.2% for the six months ended March 31, 2024. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 3.5 percentage points from 3.8% for the six months ended March 31, 2023 as compared to 0.3% for the six months ended March 31, 2024.
Current wording
As a percentage of total cost of revenues, intangible asset amortization within cost of revenues decreased by 0.2 percentage points from 0.4% for the nine months ended June 30, 2023 to 0.2% for the nine months ended June 30, 2024. As a percentage of total operating expenses, intangible asset amortization expenses within operating expenses decreased by 2.9 percentage points from 3.1% for the nine months ended June 30, 2023 as compared to 0.2% for the nine months ended June 30, 2024.
Previous wording
For the six months ended March 31, 2024, we recorded restructuring and other costs, net of $5.3 million, which included a $4.5 million severance charge related to the elimination of personnel, $0.4 million related to other one-time charges and a $0.3 million charge resulting from the closure of facilities that will no longer be utilized. During the remainder of fiscal year 2024, we expect additional personnel-related restructuring costs as we better align our cost structure with current levels of revenue.
Current wording
For the three months ended June 30, 2024, we recorded restructuring and other costs, net of $1.5 million, which included $1.4 million of consulting costs relating to our transformation initiatives. We are focused on pursuing actions intended to position the Company to deliver on our generative AI and large language model product roadmap and also deliver improved financial results which include process optimization efforts and cost reductions. We also incurred a $0.4 million severance charge related to the elimination of personnel and a $0.3 million credit resulting from the closure of facilities that will no longer be utilized. During the remainder of fiscal year 2024, we expect additional personnel-related restructuring costs in connection with the Plan as we better align our cost structure with current levels of revenue.
Previous wording
Goodwill impairment for the three months ended March 31, 2024 was $252.1 million. At March 31, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $463.4 million as of March 31, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $252.1 million.
Current wording
Goodwill impairment for the three months ended June 30, 2024 was $357.1 million. At June 30, 2024, we concluded indicators of impairment were present due to the current macroeconomic conditions, including declines in our stock price. The fair value of our reporting unit was determined using a combination of the income approach and the market approach. We weighted the methodologies appropriately to estimate a fair value of approximately $154.2 million as of June 30, 2024. The carrying value of our reporting unit exceeded the estimated fair value. Based upon the results of the impairment test, we recorded a goodwill impairment charge of $357.1 million.
Previous wording
As a percentage of total operating expenses, restructuring and other costs, net decreased by 7.4 percentage points from 8.9% for the three months ended March 31, 2023 to 1.5% for the three months ended March 31, 2024.
Current wording
As a percentage of total operating expenses, restructuring and other costs, net decreased by 2.0 percentage points from 2.4% for the three months ended June 30, 2023 to 0.4% for the three months ended June 30, 2024.
Previous wording
For the three months ended March 31, 2024, we recorded restructuring and other costs, net of $4.6 million which included a $4.4 million severance charge related to the elimination of personnel and a $0.1 million charge resulting from the closure of facilities that will no longer be utilized. During the remainder of fiscal year 2024, we expect additional personnel-related restructuring costs as we better align our cost structure with current levels of revenue.
Current wording
For the nine months ended June 30, 2024, we recorded restructuring and other costs, net of $6.7 million, which included a $4.9 million severance charge related to the elimination of personnel and $1.8 million other one-time charges, which included a $1.4 million of consulting costs relating to our transformation initiatives. We are focused on pursuing actions intended to position the Company to deliver on our generative AI and large language model product roadmap and also deliver improved financial results which include process optimization efforts and cost reductions. During the remainder of fiscal year 2024, we expect additional personnel-related restructuring costs in connection with the Plan as we better align our cost structure with current levels of revenue.
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Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Net Cash Provided by (Used in) Operating Activities
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
Our effective income tax rate for the six months ended March 31, 2024 was negative 22.1%, compared to negative 21.3% for the six months ended March 31, 2023. Our provision for income taxes for the six months ended March 31, 2024 was $46.0 million, a net change of $41.0 million from a provision for income taxes of $5.0 million for the six months ended March 31, 2023. This difference was attributable to impairment of book goodwill and the change in income tax expense related to foreign valuation allowance.
Previous report — wording carried elsewhere
Net Cash Provided by Investing Activities
Previous report — wording carried elsewhere
A decrease of $0.9 million net cash inflow related to marketable securities; and